Ballot Measure 2 promises cheaper student loans, but state could shoulder some impact

Sen. Anna MacKinnon has tried for more than four years to make student loans cheaper. That effort will now be decided by voters on Tuesday.

If enacted, Ballot Measure 2 would amend Alaska’s Constitution so the state could borrow money on behalf of the Alaska Student Loan Corporation.

Alaska has a better credit rating than the corporation, and at present scores, according to figures provided to the Alaska Legislature earlier this year, that strategy could lower the interest on student loans by 0.97 percent.

“I just think that students in Alaska, if we’re going to have a program, we should offer it at the best interest rates possible,” MacKinnon said.

Four years ago, MacKinnon — then Anna Fairclough — sponsored a resolution containing the constitutional amendment. It received widespread support but failed to pass the Legislature before the end of the term.

In the most recent Legislature, MacKinnon’s Senate Joint Resolution 2 passed both the House and Senate in time for the November ballot.

MacKinnon said she was inspired to act after speaking with numerous legislative staffers in Juneau and Anchorage constituents who said student loan costs were financially crippling them.

If approved by voters, it would change Article IX, Section 8 of the Constitution, which was last altered in 1982 to allow the state to issue bonds to pay for veterans housing. That program, operated by the Alaska Housing Finance Corporation, has been successful and now has a higher credit rating than the state as a whole.

Critically, Ballot Measure 2 only provides authority, not any money. Voters would have to approve the loan program at the polls again in 2018 or 2020, that time to authorize bonds.

Stephanie Butler, executive director of the student loan corporation, said voters should know that “Ballot Measure 2 does not obligate the state in any way at this point,” she said.

Without the second vote, no money will be spent.

The student loan corporation isn’t allowed to advertise, so voters probably haven’t seen much about the measure.

There’s a Facebook page about it, but “it’s not a contentious issue,” Butler said. “There’s nobody out there saying this is a bad thing. When it’s not contentious, there’s nobody advertising.”

Butler said the most important takeaway — given the state’s multibillion-dollar annual deficit — is that “it doesn’t increase the state budget. It doesn’t use general funds.”

What it does do is allow the student loan corporation to use bonds guaranteed unconditionally by the state. The corporation borrows money from the market using the state’s name. It then turns around and loans that borrowed money to students.

As long as students pay their debts to the corporation, the bonds will be repaid without a problem. If students can’t find jobs, or if they stop repaying their loans en masse, the state will have to foot the bill.

There’s another risk: Borrowing money for student loans will move the state closer to its overall borrowing limit, said Deven Mitchell, the state’s debt manager.

If the student loan company can operate for years without state support, then the market might stop counting student-loan bonds against the state’s limit. Until then, “there will be some reckoning required,” he wrote in an email.

He isn’t clear about the exact impact, and neither is Butler, who said, “I am aware that there is some impact … but I’m not in a position to quantify that impact.”

Based on the corporation’s years of paying its debts, “we don’t anticipate there would be a significant impact,” she said.

The Alaska Student Loan Corporation was created in 1987 to pay for loan programs dating back to the 1960s. Part of the Alaska Commission on Postsecondary Education, the corporation issues loans to Alaskans attending schools here or in the Lower 48. Non-Alaskans attending school in Alaska can also receive loans from the corporation.

Undergraduates can borrow up to $56,000, graduate students up to $60,000, and students can also borrow up to $56,000 for career training. There also are annual limits on borrowing.

The interest rate on the loans is 6.25 percent, but the corporation offers interest discounts for living in Alaska after graduation and for automatically repaying the loan.

A credit check is required to receive a loan, though Butler said that requirement could disappear if the corporation could borrow money under Ballot Measure 2.

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